China Communications Services Corporation Limited

Hot Topics

Q1. What were the major reasons that contributed to the favorable results performance of the
       Company in the first half of 2015? What measures have the Company implemented to
       turn the free cash flow to positive for the first time during the first-half period?
During the first half of 2015, the Group fully captured business opportunities from domestic telecommunications operators, such as 4G network construction, speed enhancement of fiber optic broadband and maintenance and optimization of networks, and provided its customers with integrated services of "construction and maintenance", resulting in a significant improvement in operating results. The Group achieved total revenues of RMB37,563 million, representing a year-on-year increase of 11.3% and a remarkable growth in terms of growth rate. Profit attributable to the equity shareholders of the Company was RMB1,271 million, resuming a steady growth with a growth rate of 2.7%.

As a result of the ongoing enhancement of working capital management, turnover days of accounts and bills receivable were 140 days, reversing the growth trend and achieving a year-on-year decrease. Free cash flow amounted to RMB151 million, achieving a positive indicator value for a first half-year period for the first time since the listing of the Company.
Q2. The 4G LTE FDD license was officially issued in February 2015. How was the development
       of the telecommunications infrastructure services (TIS) business and the domestic
       telecommunications operator market of the Company in the first half of 2015?
The issuance of the 4G (LTE FDD) license led to the continuous growth in fixed asset investment of domestic telecommunications industry. The Group captured this opportunity and achieved revenue from telecommunications infrastructure services of RMB18,022 million, representing a year-on-year increase of 16.6%, with a significant increase in the growth rate as compared with the same period last year and accounting for 48.0% of the total revenues. Among that, the revenue generated from the domestic telecommunications operators grew even more rapidly with a growth rate of 25.6%.

The Group has fully leveraged the development trend in the domestic telecommunications industry, and allocated resources and provided services according to the market demand. During the first half of 2015, revenue from the domestic telecommunications operator market was RMB23,802 million, representing a year-on-year increase of 15.9% and accounting for 63.4% of the total revenues. Among that, revenue from China Telecom was RMB15,850 million, representing a year-on-year increase of 25.4% and accounting for 42.2% of the total revenues.
Q3. What was the main driver for the relatively fast growth in network maintenance business
       of the Company?
In addition to our focus on the business opportunities from the capital investment of domestic telecommunications operators, the Group also sought business opportunities from their operating expenditure and continuous demand of maintenance outsourcing. Revenue from network maintenance business increased by 14.6% in the first half of 2015.

The Group will continuously focus on the opportunities from the operating expenditure and needs of customers to provide competitive one-stop construction and maintenance solutions. The Group will vigorously develop businesses in network maintenance and network optimization, and strive for breakthroughs in high-end maintenance.
Q4. How were the performances of domestic non-operator market and overseas market of the
       Company in the first half of 2015?
During the first half of this year, the Group's revenue from the domestic non-operator market was RMB12,177 million, representing a year-on-year increase of 6.3% and accounting for 32.4% of the total revenues. The Group identified six major group-level products ("Smart City", "Smart Security", "Intelligent Building", "Smart Industrial Park", "Cloud Computing" and "E-certification"), put in more marketing efforts and successfully realized cross-region promotion of its products. The Group focused more in expanding market coverage, resulting in an initial breakthrough in industries such as electricity and transportation. The Group strengthened cooperation with domestic telecommunications operators to jointly develop projects in the domestic non-operator market, with the revenue generated therefrom amounting to approximately RMB700 million.

During the first half of 2015, the Group's revenue from the overseas market was RMB1,584 million, representing a year-on-year decrease of 9.2% and accounting for 4.2% of the total revenues. Although there was a decline in overseas revenue due to the Group's initiative to scale down business with low operating efficiency and the cyclical fluctuations of large projects and implementation timing of projects, we strengthened our development efforts in overseas turnkey projects and continuously optimized the revenue structure in overseas market, and the proportion of the revenue from turnkey projects increased to 69% of revenue from overseas market.
Q5. Did the Company commence to undertake business from the Tower Company?
In accordance with the arrangements of preferential treatment and non-competition made with the Tower Company, the Group commenced to undertake business from the Tower Company and further reached consensus on cooperation during the first half of this year, making full preparation to serve the customers comprehensively.
Q6. How are the prospects of the Company? What measures will the Company introduce to
       capture the development opportunities?
Against the backdrop of slow recovery in global economy and with China's economy entering into a "new normal" phase, the Group is encountering many new situations and changes in its development. The strong promotion by the government in areas, such as the "Internet+", "Broadband China", "Made in China 2025", "One Belt, One Road", "Information Security", "Utility Tunnel System" construction, and "enhancement of the speed and quality of operators", will expand the market potential for the Group. Meanwhile, factors such as slowdown of the macroeconomic growth, low development rate of the communications industry, decrease in service charges and changes in regulatory policies also brought many challenges to the Group.

We will capture the opportunity arising from domestic telecommunications operators' construction of 4G and fiber optic broadband network, continuously seek new business opportunities in the internet-oriented transformation of domestic telecommunications operators and step up efforts in the expansion of northern China market, with a view to maintaining a stable fundamental of our operation. Meanwhile, the Group will strengthen the value-driven principle, deepen innovation and transformation, and facilitate the development through innovation.

The Group will optimize the structure of its businesses and customers. The Group will continuously pursue opportunity arising from the increase in the operating expenditure of domestic telecommunications operators, strongly expand the businesses that foster customers' loyalty, such as maintenance and logistics, and also the high-valued businesses such as "Smart City", "Smart Security", "Smart Industrial Park" and "Smart Home". The Group will also capture the opportunity in the industrial Internet and speed up the development in major sectors, such as government, electricity, water conservancy, transportation and municipal infrastructure to realize the scale development in the domestic non-operator market. Leveraging on the opportunity of the "One Belt, One Road", the Group will pursue breakthrough in the turnkey projects in overseas market.

Basic Information

Q1. What kind of Company is China Comservice?
China Comservice (China Communications Services Corporation Limited) is a leading service provider in the PRC that provides integrated support services in the informatization sector including telecommunications, media and technology. It is also the largest telecommunications infrastructure service provider in the PRC. Our services include telecommunications infrastructure services (TIS) covering design, construction, and project supervision and management; business outsourcing services (BPO) covering management of infrastructure for information technology, distribution of telecommunications services and products, and general facilities management; applications, content and other services (ACO) covering system integration, software development and system support, value-added services and other services. (Please refer to "Corporate Profile" and "History" for more details)
Q2. When was China Comservice listed?
The Company was listed on the Stock Exchange of Hong Kong on December 8, 2006. The offering price was HK$2.20 per share. (Please refer to "Corporate Information" for more details)
Q3. Who are the major customers of China Comservice?
All major telecommunications operators in China, namely, China Telecommunications Corporation ("China Telecom"), China Mobile Communications Corporation ("China Mobile") and China United Network Communications Group Company Limited ("China Unicom") are our customers. We also provide services to domestic non-operator customers and overseas customers. In the first half of 2015, revenue from domestic telecommunications operator customers accounted for 63.4% of total revenues, revenue from domestic non-operator customers accounted for 32.4% of total revenues and revenue from overseas customers accounted for 4.2% of total revenues.

While further developing domestic telecommunications operator market, the Group has also endeavored to expand the domestic non-operator market. The Group proactively provides services, such as smart cities solutions, municipal infrastructure, intelligence building and cloud computing data center construction, to key customers such as government agencies and customers in the industries of construction and property, transportation, electricity etc.

Other than China, the Group's business also covers dozens of countries and regions globally, and its overseas customers are mainly located in the emerging markets including Africa, the Middle East and Southeast Asia.
Q4. Who are the major shareholders of China Comservice?
China Telecommunications Corporation is our controlling shareholder which holds 3,559 million domestic shares, representing 51.4% of our total issued shares. In addition, China Mobile Communications Corporation, China United Network Communications Group Company Limited and China National Postal and Telecommunications Appliances Corporation hold 608 million, 236 million and 131 million domestic shares, representing 8.8%, 3.4% and 1.9% of total issued shares respectively. The public holding is 2,391 million H share, representing 34.5% of our total issued shares. (Please refer to "Shareholding Structure" for more details)
Q5. What are the telecommunications infrastructure services (TIS) provided by China
The Group is the largest telecommunications infrastructure service group in the PRC, providing a full range of telecommunications infrastructure services to telecommunications operators in China and overseas. These services include planning, design, construction and project supervision for fixed line, mobile, broadband and support systems. The Group also provides integrated solutions for ancillary communications networks and integrated informatization solutions for domestic non-operator customers such as government agencies, industrial customers and SME's, as well as overseas customers. (Please refer to "Business Overview" for more details)
Q6. What is the distribution service under Business Process Outsourcing (BPO) Service?
Distribution service means distribution of telecommunications services and products. The distribution services of the Group include the wholesale and distribution of communications machineries and handsets, logistics, procurement agency services. Our major customers are telecommunications operators, telecommunications equipment manufacturers, government agencies and medium to large-sized enterprises. (Please refer to "Business Overview" for more details)

As an integrated support service provider, our provision of distribution service enables us to cover both front end and back end services all along the value chain of telecommunications operator customers. This helps us to provide integrated services serving all aspects of the value chain, strengthen our competitive advantage of comprehensive one-stop service provision and promote our service value, therefore improving our customer loyalty and benefiting our long term business development.
Q7. What is the ACO service?
ACO means Applications, Content and Other services. The Group provides system integration, software development, system operation and maintenance support, value-added services to the domestic telecommunications operators, industrial customers and etc. (Please refer to "Business Overview" for more details)
Q8. Does the Company provide share options to its employees?
As a long term incentive and according to the regulations of the government, our Company adopted a share appreciation rights (SAR) scheme to align the interests of target employees with the Company. Under the scheme, a SAR constitutes the right to receive an amount of cash equivalent to the appreciation, if any, in the fair market value of an H share of our Company and the exercise price of the SARs. No shares will be issued under the scheme; accordingly, the shareholding of the shareholders of the Company will not be diluted by any grant of SARs.

Last Updated: 19 Nov 2015